Editorials: Where I rant to the wall about politics. And sometimes the wall rants back.

Exchanging the market for high prices and corruption

Jerry Stratton, November 8, 2009

What is with politicians trying to force consumers through a government-designed exchange to buy services? Everytime I read about the health insurance exchange that the Democratic plan sets up, I get flashbacks to the power exchange set up by California politicians in the late nineties.

Here in California the government “allowed” us to buy our electricity from individual providers instead of a single power company. But those providers were forced to buy all of their power through a single exchange at a single price. How was that supposed to help lower prices or increase service quality?

All an exchange does is ensure high prices and corruption. It increases costs by reducing choices, by increasing the number of middlemen—someone has to be paid to run the exchange and monitor the regulations—and it creates a single point of corruption. And because the exchange is just a series of regulations set up by the government, it inevitably fails at a crisis point.

When that crisis hit here in San Diego, power prices went crazy—and power wasn’t even “gravity-driven” before the power exchanges came into play. Rather than let us choose our power based on service, price, quality, or some combination, we had to go through a company that had to go through a PX that had to conform to strict government regulations. Consumers—those of us that actually had to use power—could only “negotiate” with companies that had no power1 to set prices or to give us what we wanted.

I remember looking into buying green power. There was a company that claimed to be green; it didn’t provide green power. It couldn’t—all the power was on the other side of the exchange and they weren’t allowed to go there. All they could do was promise to donate some part of their profits to green sources. That was the extent of consumer freedom under the power exchanges.

Like California’s power exchanges, health care exchanges add more regulations; these cost money to comply with. They add more middle-men; these cost money too. They mandate a one-size-fits-all pricing scheme; this increases prices for everyone who doesn’t need that size. It creates a system where we have little to no control over what services we buy. And it creates a massive single point through which all money flows. It’s going to attract corruption on a scale that will dwarf that of Enron’s traders.

No pun—the way that power exchanges were set up meant that we had rolling blackouts, where we literally had no power at all.

“CBO director Douglas Elmendorf scored the new proposal from House Republicans on health-care reform and gave them plenty of ammunition to use against expansive and expensive Democratic plans for government takeovers. Their plan, which relies on interstate competition, HSAs, and tort reform, would only cost $61 billion in the first ten years of the plan—or slightly less than 6% of what Democrats plan to spend to overhaul the entire system.”
(Hat tip to Elizabeth Scalia at
The Anchoress)

“Under the deregulation law passed in 1996, California’s investor-owned utilities (IOUs) were not allowed to enter into long-term contracts. They were mandated to purchase electricity in the day-ahead and day-of spot market.” (The best part about California’s power exchanges? They kept calling these ridiculous new regulations “deregulation”.)

“The fundamental GOP philosophy is that if you make health care cheaper, then insurance will likewise become cheaper (Capitalism); and if insurance is cheaper, more people will buy it (Econ. 101). Everything in this bill is designed with that end in mind: Make health care cheaper by removing the perverse incentives of the ‘invisible foot’ of government, driving costs up.”

“What’s more important is what is in the new amendment. Remember when the House leadership, the White House, and sympathetic media commentators everywhere attacked the insurance industry for predicting that the Democratic bill would cause premiums to go up? The manager’s amendment is, in effect, the House Democrats’ admission that it would do just that. Their answer: more government control.”

“In a rational political world, this 1,990-page runaway train would have been derailed months ago. With spending and debt already at record peacetime levels, the bill creates a new and probably unrepealable middle-class entitlement that is designed to expand over time. Taxes will need to rise precipitously, even as ObamaCare so dramatically expands government control of health care that eventually all medicine will be rationed via politics.”

In a world of choice, a middleman must add value (lower prices, ease of delivery) in addition to their added costs (fewer choices, lower quality, etc.) But the costs are always there. Once a middleman is mandated, there is no longer any need to add value.

Capitalism is not a system—it’s just what people do when they get together peacefully. When people complain about capitalism, they’re really saying that they want more power over what people do when they get together peacefully.

In a world of choice, a middleman must add value (lower prices, ease of delivery) in addition to their added costs (fewer choices, lower quality, etc.) But the costs are always there. Once a middleman is mandated, there is no longer any need to add value.

I think I’ve figured it out. When people say they’ve tried the market and found it wanting, they’re really just trying to deflect criticism of government policies. They’re trying to pretend that the problems government causes are someone else’s fault—in this case, the free market.

David Goldhill, inspired by the unnecessary death of his father in a hospital surrounded by great doctors, nurses, and technology, describes in detail why health care today kills people—and then charges for it. In no other industry could a business fail so miserably, and then send a bill for having failed.
He also argues persuasively that the ACA took all the bad parts of our health care system—and made them worse.